Youdao, Inc.

Good day and welcome to the Yodell 2024 Second Quarter Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wong, Investor Relations Director of Yodell. Please go ahead.

Thank you, operator. Please note the discussion today will contain forward-looking statements. related to the future performance of the company, which are intended to qualify for the safe harbor from liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect UW's business and financial results is included in the certain company filings with the U.S. Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definitions of non-GAAP financial measures and recommendations of GAAP to non-GAAP financial results, please see the 2024 Second Quarter Financial Results News release issued earlier today. As a reminder, this conference is being recorded. A webcast replay of this conference call will be available on UDAH's corporate website at ir.udah.com. Joining us today on the call from UDAH Senior Management are Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jun, our President, Mr. Peng Su, our VP of Strategy and Capital Markets, and Mr. Wayne Lee, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic directions.

Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on RMB, unless otherwise specifically stated. In the second quarter of 2024, net revenues reached RMB 1.3 billion, growing 9.5% year-over-year. Operating cash inflow reached a record level of RMB 250.2 million, an increase of 88.2% year-over-year. Loss from operations was RMB 72.6 million, as Q2 is typically seasonally weak in the bottom line, and it narrowed by 74.9% year-over-year. In the first half of 2024, Net revenues reached RMB 2.7 billion, marking an increase of 14.5% year-over-year. Loss from operations was RMB 42.6 million, narrowing 91.2% year-over-year. Operating cash outflow was reduced to RMB 148.8 million, reflecting an improvement of 53.7% year-over-year. The financial performance was in line with our plan. Now, let's review the major development across our business lines in the second quarter. Net revenues from learning services were RMB 643.8 million, slightly down by 5.5% compared with the same period of last year. Digital content services maintained a healthy growth trajectory, achieving net revenues of RMB 403.3 million, up 6.8% year-over-year. Operating cash inflows generated by digital content services exceeded RMB 200 million. Yodaolingshi continued to drive product upgrades and customer satisfaction. Firstly, in Q2, we released over 400 newly healthily calibrated tiered learning videos for students of different levels. We also significantly upgraded the class-based study experience for better motivation and context. As we discussed before, Ling Shi pioneered the approach of personalized pre-recorded video learning. Building upon this vast library of thousands of high-quality videos, we offer a set of important services, including automatic diagnosis of students' current learning levels, class-based digital learning, personalized quiz generation, and weekend live consultation with our experienced staff members. These are all key to the high effectiveness of our products, and we keep improving them every year. Second, in terms of applications of AI and growth initiatives, we upgraded our college admission consultation service to the all-new AI College Admission Advisors in Q2. Using large language models, the AI Advisor effectively discusses and guides students in their college application process, helping them in choosing universities and majors. Since the new release, the service saw nearly 3 million page views, rising by 30% year over year, making it a key asset in attracting new students and parents. Continuous product and service upgrades significantly boosted the retention ratio of Youdao Lingshi, reaching over 70% in the second quarter, a record high, and an increase of more than 10% points year-over-year. In addition, as for Youdao literature, we offered nearly 40,000 high-quality AI writing refinements in the second quarter, improving our retention rate by approximately 10 percentage points on a year-over-year basis. Next is learning services segment is our AI-driven subscription services. In the second quarter, our AI-driven subscription services maintained rapid growth with total sales surpassing RMB 60 million, marking a nearly 200% year-over-year increase and over 30% quarter-over-quarter growth. Moreover, this represents the sixth consecutive quarters of over 50% year-over-year growth. Total-wise, in June, we launched a major new mobile app, Mr. P AI Tutor, the first all-subject AI tutor in China, and it received positive feedback from users after its initial integration into the dictionary pen earlier this year. Second, AI translation in UDA desktop translation now supports languages other than English and Chinese. There is also new support for on-term databases and multi-model document input. These upgrades pushed AI translation usage to exceed 30 million times in Q2. Third, in collaboration with NetEase Cloud Music, Udal Dictionary introduced a music sentence feature in the second quarter, helping users learn vocabulary while listening to music. Last but not least, High Echo introduced the children mode, offering tailored topics for children, child-friendly digital avatars, and generating exclusive post-conversation reports to aid children in improving their English-speaking skills. We are also delighted to observe that the average usage time of children mode is nearly twice that of other modes, highlighting its effectiveness in engaging and retaining users, as well as enhancing their English proficiency. Our online marketing service segment maintained a strong growth trajectory in Q2, with net revenues reaching RMB $511.2 million, hitting a record high and representing a increase of 68.4% year-over-year. This marks the seventh consecutive quarter of over 50% year-over-year growth, driven primarily by RTA, real-time API, and domestic KOL's ongoing robust performance, with RTA revenue more than doubling year-over-year in Q2. Furthermore, as large language models rapidly advance in the market, the demand for promoting these models and their applications among tech companies has surged. Our team sees this opportunity and is helping leading players like ByteDance, Doubao, Zhipu, and Baidu Ernie in this area to grow their products. In Q2, net revenues from AI tools and advertisement grew by more than 100%, quarter over quarter. Additionally, our advertising collaboration with Medi's group has been advancing smoothly and demonstrating synergy. On one hand, UDAO's data application significantly enhances the traffic monetization rate on a number of NetEase assets by over 100% in Q2. On the other hand, our improved advertising performance has attracted more NetEase product teams to use our service. In the second quarter, the percentage of our total advertising revenue from NetEase as our clients increased around 3 percentage points quarter-over-quarter. It is still less than 10% of our total ad revenue, indicating significant future growth potential. Regarding the smart devices segment, the net revenues were RMB $166.7 million in Q2, down 25% year-over-year. The decline was in large part due to unfavorable product mix. We updated our entry-level dictionary pane, so these reached record unit sales in Q2. In the meantime, our high-end products were from last year and reached the latter part of their lifecycle in Q2. So high-end products had relatively lower sales. These factors negatively impacted total device revenue and also average unit price for Q2. We expect Q2 to be the low point operationally for the device business this year, as we are currently ramping up high-end products for the new school year. In fact, U.Dictionary PAN was again the category top seller on JD.com during the June 18th shopping festival for the fifth consecutive year. And Q2 unit sales show a year-over-year increase of over 50%. broadening our brand's reach. More recently, we launched the new high-end U.X. Japan X7. Large language model functions like AI translation and MSP AI tutor has already been widely welcomed by users. First month sales units doubled those of X6 Pro, the high-end product released last month. This week, we just released our top-of-the-line X7 Pro with a premium screen and more advanced AI features. It is gaining a lot of interest. Looking at our business as a whole, in the first half of this year, we executed on our overall strategy of AI plus education and made a significant progress in our journey. We focused our resources on three core businesses, digital content services, especially Da Li Shi, online marketing services, and AI-driven subscription services. All three areas show good growth, healthy economics, our unique competitiveness, and long future runways. And more importantly, they are key assets in our mission of helping every person learn more effectively. In the meantime, Financially, we worked hard to drive towards sustainable profitability, which we believe is the foundation for our next phase of growth. I am pleased with the team's progress and solid execution. Our operational and financial metrics showed increased competitiveness of our business. For example, in addition to the numbers I shared at the beginning, the ratio of the Sales and marketing expenses to net revenues was 35.8% in the first half of this year, down by approximately 13 percentage points year-over-year, a very good improvement. Looking ahead, barring unexpected market changes, we expect the business to achieve full-year positive operating income in the near future. UDAO's strength lies in our unique ability to advance AI environments across business lines, combining technical strengths with operational excellence. The rapid development of online marketing and AI subscription services prove this and will continue to drive our growth. Our online courses, underpinned by high-quality content, differentiated services, and unique ways of leveraging AI are another pillar of our future growth. In the long term, the future of AI plus education looks incredibly bright, and we will strive to lead the charge. With that, I will turn the call over to Supong to provide you with more detailed insights into our financial performance. Thank you.